A bear put spread consists of buying one put and selling another put, at a lower strike, to offset part of the upfront cost. The spread generally profits if the stock price moves lower. The potential profit is limited, but so is the risk should the stock unexpectedly rally.

This strategy is the combination of a bear put spread and a bear call spread. A key part of the strategy is to initiate the position at even money, so the cost of the put spread should be offset by the proceeds from the call spread.

This strategy consists of buying one call option and selling another at a higher strike price to help pay the cost. The spread generally profits if the stock price moves higher, just as a regular long call strategy would, up to the point where the short call caps further gains.

A bull put spread is a limited-risk-limited-reward strategy, consisting of a short put option and a long put option with a lower strike. This spread generally profits if the stock price holds steady or rises.

This strategy is the combination of a bull call spread and a bull put spread. A key part of the strategy is to initiate the position at even money, so the cost of the call spread should be offset by the proceeds from the put spread.

The cash-secured put involves writing a put option and simultaneously setting aside the cash to buy the stock if assigned. If things go as hoped, it allows an investor to buy the stock at a price below its current market value.

The investor must be prepared for the possibility that the put won't be assigned. In that case, the investor simply keeps the interest on the T-Bill and the premium received for selling the put option.

The investor adds a collar to an existing long stock position as a temporary, slightly less-than-complete hedge against the effects of a possible near-term decline. The long put strike provides a minimum selling price for the stock, and the short call strike sets a maximum price.

This strategy consists of writing a call that is covered by an equivalent long stock position. It provides a small hedge on the stock and allows an investor to earn premium income, in return for temporarily forfeiting much of the stock's upside potential.

This strategy is used to arbitrage a put that is overvalued because of its early-exercise feature. The investor simultaneously sells an in-the-money put at its intrinsic value and shorts the stock, and then invests the proceeds in an instrument earning the overnight interest rate. When the option is exercised, the position liquidates at breakeven, but the investor keeps the interest earned.

This strategy is appropriate for a stock considered to be fairly valued. The investor has a long stock position and is willing to sell the stock if it goes higher or buy more of the stock if it goes lower.

This strategy consists of buying a call option. It is a candidate for investors who want a chance to participate in the underlying stock's expected appreciation during the term of the option. If things go as planned, the investor will be able to sell the call at a profit at some point before expiration.

This strategy combines a longer-term bullish outlook with a near-term neutral/bearish outlook. If the underlying stock remains steady or declines during the life of the near-term option, that option will expire worthless and leave the investor owning the longer-term option free and clear. If both options have the same strike price, the strategy will always require paying a premium to initiate the position.

This strategy consists of buying puts as a means to profit if the stock price moves lower. It is a candidate for bearish investors who want to participate in an anticipated downturn, but without the risk and inconveniences of selling the stock short.

This strategy combines a longer-term bearish outlook with a near-term neutral/bullish outlook. If the stock remains steady or rises during the life of the near-term option, it will expire worthless and leave the investor owning the longer-term option. If both options have the same strike price, the strategy will always require paying a premium to initiate the position.

The initial cost to initiate this strategy is rather low, and may even earn a credit, but the upside potential is unlimited. The basic concept is for the total delta of the two long calls to roughly equal the delta of the single short call. If the underlying stock only moves a little, the change in value of the option position will be limited. But if the stock rises enough to where the total delta of the two long calls approaches 200 the strategy acts like a long stock position.

The initial cost to initiate this strategy is rather low, and may even earn a credit, but the downside potential is substantial. The basic concept is for the total delta of the two long puts to roughly equal the delta of the single short put. If the underlying stock only moves a little, the change in value of the option position will be limited. But if the stock declines enough to where the total delta of the two long puts approaches 200 the strategy acts like a short stock position.

This strategy is simple. It consists of acquiring stock in anticipation of rising prices. The gains, if there are any, are realized only when the asset is sold. Until that time, the investor faces the possibility of partial or total loss of the investment, should the stock lose value.

In some cases the stock may generate dividend income.

In principle, this strategy imposes no fixed timeline. However, special circumstances could delay or accelerate an exit. For example, a margin purchase is subject to margin calls at any time, which could force a quick sale unexpectedly.

This strategy consists of buying a call option and a put option with the same strike price and expiration. The combination generally profits if the stock price moves sharply in either direction during the life of the options.

This strategy profits from the different characteristics of near and longer-term call options. If the stock holds steady, the strategy suffers from time decay. If the underlying stock moves sharply up or down, both options will move toward their intrinsic value or zero, thus narrowing the difference between their values. If both options have the same strike price, the strategy will always receive a premium when initiating the position.

This strategy profits from the different characteristics of near and longer-term put options. If the underlying stock holds steady, the strategy suffers from time decay. If the stock moves sharply up or down, both options will move toward their intrinsic value or zero, thus narrowing the difference between their values. If both options have the same strike price, the strategy will always receive a premium when initiating the position.

A candidate for bearish investors who wish to profit from a depreciation in the stock's price. The strategy involves borrowing stock through the brokerage firm and selling the shares in the marketplace at the prevailing price. The goal is to buy them back later at a lower price, thereby locking in a profit.

This strategy can profit from a steady stock price, or from a falling implied volatility. The actual behavior of the strategy depends largely on the delta, theta and Vega of the combined position as well as whether a debit is paid or a credit received when initiating the position.

This strategy can profit from a slightly falling stock price, or from a rising stock price. The actual behavior of the strategy depends largely on the delta, theta and vega of the combined position as well as whether a debit is paid or a credit received when initiating the position.

This strategy combines a long call and a short stock position. Its payoff profile is equivalent to a long put's characteristics. The strategy profits if the stock price moves lower--the more dramatically, the better. The time horizon is limited to the life of the option.

This strategy is essentially a long futures position on the underlying stock. The long call and the short put combined simulate a long stock position. The net result entails the same risk/reward profile, though only for the term of the option: unlimited potential for appreciation, and large (though limited) risk should the underlying stock fall in value.

This strategy is essentially a short futures position on the underlying stock. The long put and the short call combined simulate a short stock position. The net result entails the same risk/reward profile, though only for the term of the options: limited but large potential for appreciation if the stock declines, and unlimited risk should the underlying stock rise in value.

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This web site discusses exchange-traded options issued by The Options Clearing Corporation. No statement in this web site is to be construed as a recommendation to purchase or sell a security, or to provide investment advice. Options involve risk and are not suitable for all investors. Prior to buying or selling an option, a person must receive a copy of Characteristics and Risks of Standardized Options. Copies of this document may be obtained from your broker, from any exchange on which options are traded or by contacting The Options Clearing Corporation, One North Wacker Dr., Suite 500 Chicago, IL 60606 (1- 800-678-4667).

This web site discusses exchange-traded options issued by The Options Clearing Corporation. No statement in this web site is to be construed as a recommendation to purchase or sell a security, or to provide investment advice.

Options involve risk and are not suitable for all investors. Prior to buying or selling an option, a person must receive a copy of Characteristics and Risks of Standardized Options (PDF). Copies of this document may be obtained from your broker or from any exchange on which options are traded or by contacting The Options Clearing Corporation, One North Wacker Dr., Suite 500 Chicago, IL 60606 (1-800-678-4667).